Put your finger on the pulse of gold

By Morgan Danecek

Have you ever wanted to be a doctor? Well, put your finger to the pulse of gold and try a diagnosis — I guarantee that if you have your wits about you, you will find that the patient is very sick! No, the patient is not gold. The patient is the United States of America, and gold is pulsing through its sclerotic veins. The USA is like an obese man maintaining his health by sucking down a Double Gulp and believing it’s a healthy smoothie.

A lot of hot air has been blown around since the recent lows in gold were reached back in the years around 2000, when the U.S. had a “budget surplus” and all the investing mania was centered on the new-fangled Internet companies that later went belly-up. But even then, a finger to the pulse of gold — in conjunction with an evaluation of other symptoms – would find a sick patient.

Why? The answer is the “d-word” — no, not “the deficit.” American debt is the sickness that dare not speak its name, just like the c-word cancer used to be. Now, this is not because this disease is terminal — it isn’t terminal at all. It’s just that nobody wants to hear about the cure, because they imagine that the cure will be fatal.

For some, the remedy is gold. For others, tax cuts. Still others suggest that the d-word can be ignored.

Savvy investors who held their finger to the pulse of gold and also looked at American debt in 2000 were able to buy a one-troy-ounce gold coin for around $300. I know, because I was one of them. Why did I buy gold then? Because I faced what most Americans will not: that American debt is a like a cancer on our country — and no one wants to talk about it. And with any disease that is left untreated, it is going to get worse.

Let’s get this straight: we are not miracle-workers, you and I. We have very little power to change any of this. But one thing is sure: gold is like a vitamin that can mitigate symptoms until you find the cure can make you well. Investment portfolios all need a shot of gold, in the mainline.

But good health doesn’t come from only one vitamin. You need a variety of remedies to confront this malady, though owning gold may be the most important one. No financial doctor would suggest you sell everything and buy gold bars, nor am I suggesting such a thing. But any portfolio that does not have some of this element in it is clearly anemic.

And what about the prognosis for the patient? It’s really very simple: if you owe too much money and are feeling peaked, stop borrowing and cut back on the spending. Of course, for the largest economy on earth, it’s not simple at all. But let’s admit that the treatment can at least be LOGICAL.

How can it be logical? Anyone who suggests the debt can be reduced while at the same time cutting taxes is a fool, if not a quack. That is your sign: if any persons running for office round about now suggest reducing the debt and cutting taxes at the same time, the person is a fool or a liar. Cutting taxes increases the debt, not the other way around. Did these people go to school, or not?

So we borrowed from China and gave the money to wealthy company owners (and also to plenty of folks who just inherited their riches). Was that smart? We increased our expenses (interest expenses) and at the same time reduced our revenue (tax collections)! Anybody with half a brain can tell you that that is idiotic. Once you start to listen to the excuses and rationales, it starts to get really fuzzy, and before you know it, the throbbing pulse of gold is heavy in your ears.

Let me repeat: until the United States has an operating plan to deal with the d-word, gold will be a good investment. Now, it may bump up a bit here and there, languish for a time, or take a scary roller-coaster-like dip down a bit here and there — but make no mistake: it will be good to go until the USA has a plan. If that plan does not arrive — look out below for the dollar — because anyone trying to prop up its flabby weight is going to be crushed to a pulp!

The best gold investment approach is a diversified one: the gold ETF GLD
/quotes/zigman/41663/quotes/nls/gldGLD is a good and easy tool, but so is having some gold coins in your safe. Try some remote-storage gold certificates like those at Australia’s Perth Mint or the London Goldmoney vaults as well. You can dabble a bit in gold miner ETFs, too, like the ETF GDX
/quotes/zigman/420125/quotes/nls/gdxGDX, but those should be dwarfed by your other holdings. And gold stocks are no substitute for gold – unlike gold itself, they’re easy to buy but hard to monitor.

A little “Vitamin G” and you’ll have no need for the witch doctor — though unfortunately, you’ll still need a crystal ball.

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